DaMina Advisors Frontier Markets Research Note – COTE D’IVOIRE: With international mediation over, world’s largest cocoa exporter and biggest CFA monetary zone economy is likely only hours away from a civil conflict… Is Cote d’Ivoire Africa’s next Burma??
UN, AU and ECOWAS abandon diplomatic mediation efforts even as ethnic conflict looms
Stability of CFA currency zone called into question as Ouattara orders regional central bank BCEAO to stop honoring financial requests from Gbagbo
Rising risk to country’s Eurobond payments and $4bn IMF/Paris Club restructuring deal
Multinational companies in country to face dilemmas over taxes; UN sanctions, port routes
Food and gasoline shortages spike as hording increases and several shops remain shut
Ouattara withdraws credentials of Gbagbo ambassadors to UN, US, France, EU, etc.
France downplays military intervention, but option looking increasingly likely
Sarkozy softens stance fearing reprisals on 15,000 French nationals in besieged country
Ghanaian foreign minister publicly contemplates military intervention to depose Gbagbo
Ouattara and Soro prepare for final confrontation – national TV and radio targeted
Growing tensions may see Bedie defect from Ouattara camp as north-south cleavage deepens
Ghana to benefit from surge of cocoa smuggling from neighbor; Cedi to likely strengthen
Targeted ethnic killings possible in a renewed conflict – Abidjan suburbs restless
Conflict to draw in neighbors Ghana, Liberia, Burkina Faso, Guinea and Mali
The weeklong Ivorian constitutional-political impasse is close to approaching its moment of truth. With international diplomacy efforts terminated and the belligerent parties left to sort out their differences, the country may be only 24 – 48 hours away from a major confrontation between the rival governments of Laurent Gbagbo and Alassane Ouattara.
With the UN, AU and ECOWAS opposed to a unity government like the Kenyan and Zimbabwean models and all three bodies having unanimously endorsed Ouattara’s election, diplomatic mediation is off the table. (Gbagbo won’t accept mediation from a body that has recognized his opponent even before he has had the opportunity to state his case). By siding conspicuously with one claimant to the Ivorian presidency, Ouattara, the international community and regional leaders have given up any leverage with Gbagbo in favor of moral clarity. The conflict will now have to be solved by confrontational means. In addition, with the entrenched positions of both Gbagbo and Ouattara, it is unlikely either will want to serve under the other in a unity government. Having been proclaimed the rightful winner of the November 28 poll, Ouattara is also unlikely to simply volunteer to step down. Moreover, Gbagbo despite losing the support of the international community and neighboring leaders still has strong support from the Army and street support from the Young Patriot militias and the southern-based Ivorian bureaucracy. Gbagbo is unlikely to accept to become Ouattara’s prime minister.
Former Liberian President Charles Taylor’s trial at The Hague is another disincentive for Gbagbo to step down. Any of the foregoing scenarios above will leave the country’s ethnic wounds raw for a long time – no matter who eventually governs as president.
A confrontation between Gbagbo and Ouattara realistically has three possible outcomes. The first possible outcome is that the Ivorian military, encouraged by France and the US, abandons Gbagbo and swears allegiance to Ouattara forcing Gbagbo to hand over power peacefully to Ouattara. (Of note, even if Gbagbo is forced from power by the military he is likely to return to his ethnic Bete homeland around Gagnoa and rally support against the Ouattara regime from there. Furthermore in anger over Gbagbo’s removal rowdy xenophobic pro-Gbagbo Young Patriot militias in Abidjan will likely to go on a rampage in Abidjan targeting foreigners and northerners in ethnic killings. The second possibility is that Gbagbo attempts to dislodge Ouattara from his base at the Golf Hotel or attempts to arrest Ouattara. In this case, Ouattara may be forced to flee from Abidjan to rebel held Bouake in the north. Gbagbo’s forces may even attempt to cut off electricity, water and food to the besieged hotel before storming it. Ouattara’s move to Bouake under the protection of the New Forces rebels will effectively re-partition the country with continued cross-border skirmishes between the two sides not too dissimilar from India and Pakistan’s bloody Kashmir border. A balkanization of the country will also see major population displacements as northern Muslims living in the south are chased north and southern Christians who live in the north are chased south. Third, in frustration, Ouattara could take to the streets and invite French and US commando units to dislodge Gbagbo from the presidential palace. However, even if Ouattara were successful in that endeavor, his administration would spend an enormous amount of time trying to purge the new government bureaucracy of pro-Gbagbo loyalists – as akin to what happened in Iraq with the post-Saddam Baathist bureaucrats. An unlikely fourth option to end the conflict is a massive deployment of regional troops from the Economic Community of West African States (ECOWAS) to dislodge Gbagbo from power. While such a move is not impossible, at the moment it is fantastical. It is not clear that any major West African nation is ready to bear the high financial costs of such an enterprise. An attempt by either side to use assassination to solve the impasse as happened in Rwanda in 1994 with President Juvénal Habyarimana or in 2000 with General Robert Guei in Cote d’Ivoire will also trigger an all out ethnic melee.
If Gbagbo remains in power, and is sanctioned by the ECOWAS, AU and UN, he will likely follow Zimbabwean President Robert Mugabe’s 2003 example and completely withdraw Cote d’Ivoire from ECOWAS. Being the second largest financial contributor to ECOWAS, such a move will not be an inconsequential for the perennially cash strapped regional body. In addition, following Ouattara’s December 7 letter to the governor of the Banque Centrale des États de l'Afrique de l'Ouest (BCEAO), Philippe-Henri Dakoury-Tabley (himself another Ivoirian), to stop all payments to Gbagbo, the future of the CFA monetary union may itself be in question. If Gbagbo remains in power, the south will order all future cocoa and oil payments to be routed away from the BCEAO – effectively mothballing an institution which ranks Cote d’Ivoire as its largest member. Gbagbo may even withdraw his country, Francophone Africa’s largest economy, from the CFA monetary block and from La Francophonie. The CFA franc, which is pegged to the Euro and managed by the French Central Bank (which manages the foreign exchange reserves of the BCEAO region), is likely to come under enormous valuation pressure were Gbagbo to take such a drastic measures. The CFA peg will have to be revalued downwards – fueling new inflation in the CFA zone and cheapening the value of exports vis-à-vis major non CFA neighbors such as Nigeria and Ghana. Ghana and Nigeria’s problematic balance of payment trends will become exacerbated under this scenario.
Future Eurobond payments will also come under risk of non-payment under a partitioned Cote d’Ivoire. The African Development Bank (AfDB) and the IMF have both signaled their disquiet in the past few days about happenings in Cote d’Ivoire and will both likely indefinitely suspend the current Paris Club restructuring of Cote d’Ivoire’s external debt, which stands at over $4bn. S&P, Fitch and Moody’s are all likely to further downgrade Cote d’Ivoire’s debt if the impasse continues.
International companies operating in Cote d’Ivoire will have their own major dilemmas. Mining firms like Rand Gold and others who expect to rely on Ivorian transportation systems to reach southern ports will be cut off in a partitioned Cote d’Ivoire. Southern companies who export goods o the landlocked northern countries will also be negatively impacted. Oil companies like Canadian National Resources and Tullow may become targets of international sanctions which would effectively cripple their operations in Cote d’Ivoire. Even if the UN doesn’t impose sanctions, human rights NGOs will target these companies for working in Cote d’Ivoire. For the over 600 French owned companies operating in Cote d’Ivoire, many will have to choose sides, sometimes with dramatic consequences for their shareholders.
Cote d’Ivoire produces over one million metric tons of cocoa each year making it a contributor of 70% of the world’s supply. Most of the country’s cocoa farms are in the south, so any partition of the country will not dramatically impact the sector – except that most of the farm hands who work on these farms are Muslims from the north. Many will flee to the north if the country is partitioned. So a partition will nevertheless impact production of cocoa. Areas close to the Ghanaian or Liberian borders will probably see an increase in smuggling. Already this week Ghanaian cocoa officials have recorded a significant uptick in official cocoa purchases.
The overlapping of ethnicities in Cote d’Ivoire and Ghana, Liberia, Burkina Faso, Guinea and Mali means that any major conflict in Cote d’Ivoire will quickly overwhelm most of their neighbors. While all the surrounding states will see an influx of refugees and the return of thousands of their own citizens who live in Cote d’Ivoire, many of those governments are likely to funnel arms to their supporters in Cote d’Ivoire in order to support one side or another. Landlocked countries such as Burkina Faso and Mali will suffer even more as their transportation routes through Cote d’Ivoire are disrupted.
In the history of international conflicts, it is not often clear when a minor conflict has reached a major fulcrum point and is about to become a major one or how crises that seem innocuous and solvable at the beginning of a conflict sometimes remain unsolvable and limp on for decades. Gbagbo may have learned the hard Machiavellian lessons from watching Gaddafi, Castro, Kim Jon-Ill, Mugabe, Mubarak, Saddam, Assad, Bashir, the Ayatollah’s, Abacha and Than Shwe. Gbagbo may come to believe that despite strong UN resolutions to the contrary, it is possible for a determined leader to hang onto power if he can buy the support of the local army and the intelligentsia with cash from exports. Just as Cuba, Burma, Libya, Zimbabwe, North Korea and Iran have been able to survive sanctions for decades, it is foolhardy to believe that a partitioned Cote d’Ivoire under Gbagbo cannot do so as well. And just as the world quickly forgot about the Iranian opposition leader Mir-Hossein Mousavi, who, just like Ouattara, presumably beat President Ahmedinejad but never took power despite global protests; Gbagbo may simply adopt similar hard tactics knowing that the attention span of the international community is rather short.
As Stalin is believed to have asked of the Pope – how many divisions does he command? Gbagbo today asks the same question of the UN, AU and ECOWAS.
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